Building a customer-
centric operating model
Aligning segments,
products, and channels
Contacts
Chicago
Ashish Jain
Principal, PwC US
+1-312-578-4753
ashish.jain
@strategyand.us.pwc.com
Kelley Mavros
Principal, PwC US
+1-312-578-4715
kelley.mavros
@strategyand.us.pwc.com
Originally published by Booz & Company in 2010 as “Building a Customer-Centric
Operating Model: Aligning Segments, Products, and Channels,” by Paul Hyde,
Frank Ribeiro, Ashish Jain, and Kumar Kanagasabai.
Strategy& 2
Financial institutions can expect to compete in a difficult,
low-growth environment for the foreseeable future
Less leverage Continued reduction in consumer debt (~US$120B since mid-2008)
Significant decline in business borrowing
Higher savings rates Increased savings rates for consumers (from -0.2% to 4% since 2008) New normal
– Reduced consumer spending
– Increased retail funding for banks Subdued balance sheet growth
Increased regulation Higher cost of funding
Government regulation
– Limited risk taking
Regulation driving higher costs
– Increased cost of operations and lower fee revenue
– Negative impact on fee revenue
Lower return on equity
Consolidation Continued consolidation of smaller banks (e.g., MB Financial Bank and
Corus Bank), facilitated predominantly by FDIC
Opportunistic consolidation by larger banks
Higher levels of New, higher level of baseline unemployment
unemployment – Marginal increase in income levels
– More nonperforming assets compared to past
Source: Strategy& analysis
Strategy& 3
Competition will be intense as players focus on
attractive segments
Segment Profitabiity Trends 2009–15
Mass Future income stream hit by unemployment and flat/falling wages
Demand for lending products contracts as customers seek to reduce leverage and increase savings rate
Majority of assets tied up in home, with flat outlook for home prices
Mass affluent Income and home assets hit by downturn but recovering quicker than mass as earning power more resilient
and wealth more diversified
Debt servicing capacity recovering, along with balance sheets and income, leading to some lending growth
High net worth HNW segment’s wealth is recovering along with the stock market
Demand for investment advice from banks increases with newfound appreciation for potential investment risks
and less appetite for do-it-yourself investing
Demand for debt recovers slowly as incomes and asset values rise
Retirees Population ages 65 and older to grow by 30% to almost 50 million by 2016
Deferrals of retirement in 2008–10, due to collapse of equity wealth, will reverse as market recovers
Demand increasing for investment products to supplement uncertain Social Security payments
Generation Y and younger (ages 16–31) to grow from 26% to ~40% of the workforce by 2015
Gen Y
Comfortable using lower cost-to-serve channels such as online as their main interaction method
Appetite for, and access to, debt will recover slowly, and banks and businesses will continue to reduce debt
Small business
Small business profits to recover slowly, in line with the economy and consumer spending
Source: Strategy& analysis
Strategy& 4
Building wallet share with existing customers will be a
major driver of growth
From the customers’ perspective, the new normal means consolidating Growing customer relationship...
relationships with one bank 2.0X
– Build trust and relationship with an institution they believe did not fail 1.5X
them 1.0X
– Access scarce credit lines
– Get better pricing for risk
0–5 months 11–15 months 21–25 months
From the bank’s perspective, this consolidation offers the best way to build ...results in higher balances...
5X
sustainable earnings
– Growth through increased share of wallet
3X
– Deeper relationships make it easier to understand risks
1X
– Growth through wholesale channels/shadow banking system no longer
feasible/desirable
0–5 months 11–15 months 21–25 months
Implications: Banks need to focus their core assets on the “existing ...and higher customer profitability
3.0X
customer base”
– Deeper customer insights 2.0X
– More tailored value propositions 1.0X
– Better understanding of risk
0–5 months 11–15 months 21–25 months
Source: Strategy& analysis
Strategy& 5
For many, winning in this environment will require
moving from a transactional to consultative
relationship model
Financial services relationship models
Life stage
Financial solutions that
Consultative
anticipate customers’
changes in life stage
Consultative services that
Product bundles
identify customer needs and
“Our bank helped us save for a
provide tailored solutions
Product bundles that cement home, got us our first
Product-led cross-sell
a customer’s relationship mortgage, and is now working
“When I went in to roll over my
with the bank with us as we save for
Cross-sell at point of sale retirement account, the bank’s
retirement.”
to maximum products officer also helped me rethink
“I make one payment per
per customer my life insurance needs.”
month, that covers my mortgage
and my line of credit — and if I
“When I opened my checking
avoid late payments for a full
account, I automatically got a
year, my savings account
free savings account and credit
interest rate goes up.”
card.”
Source: Strategy& analysis
Strategy& 6
However, many organizations are structured by product
and therefore not able to deliver a consultative customer
experience
Typical operating model issues Sample questions to address
– No single accountability for defining the client experience and – What is the role of segment vs. product vs. channel?
value proposition
– Who owns client insights and the ultimate customer value
– Capabilities duplicated across the organization resulting in excess proposition?
cost and suboptimal experience
– What is the difference between a product and a business?
– Product silos driving acquisition independently, not holistically
approaching customers – How much local market tailoring of offerings is appropriate?
– No accountability for the end-to-end customer experience – How should segments, products, and channels work together?
– Channels aligned with products — not integrated into a single – Who owns the P&L, revenue, and cost of manufacturing?
experience – What should be the performance metrics for segments, products,
– Legacy IT infrastructure not supporting a single customer view and channels?
Source: Strategy& analysis
Strategy& 7
At the core of the issue, financial institutions need to
clarify how segments, products, and channels interact
to deliver the experience
Segments
1. Roles and responsibilities
What are the distinct roles of segments, products,
channels?
Roles and
responsibilities 2. Capabilities
What differentiated, non-duplicative capabilities must
each build?
3. Interaction model
How should these groups interact in key processes like
product development?
Governance
4. Governance
How should they be measured to reinforce appropriate
behavior?
Capabilities Interaction model
Products Channels
Source: Strategy& analysis
Strategy& 8
1. Roles and responsibilities
Segments must take on a lead role to set the value
proposition, while products innovate and channels
manage the experience
Example: roles and accountabilities
Segment Product Channel
Develop client insights and Design, implement, and support Manage customer
Role relationships products relationships
Product – Develop segment strategy and – Generate ideas for new products and – Collect local market insight and dynamics
development programs enhancements – Disseminate client point-of-sale feedback
– Set client value proposition – Make product build-vs.-buy decisions and
detail specifications
Pricing – Define pricing strategy (e.g., market – Manage tactical pricing (e.g., rate resets, fee – Structure deals based on client
positioning, relationship/exception repricing) relationship and willingness to pay
pricing guidelines) – Gain understanding of competitive rates – Manage exception pricing within
guidelines
Sales and – Define client experience (e.g., targeted – Support sales process (e.g., identification of – Deliver sales and service to clients
service treatments, coverage model) opportunities) – Ongoing relationship management
– Develop content for online training, field
calls, sales guides
Risk – Integrate risk management into overall – Integrate risk impact and regulatory – Deliver sales and service within set risk
segment strategy requirements into product and pricing management framework
strategy
Source: Strategy& analysis
Strategy& 9
2. Capabilities
Capabilities must support roles —
e.g., segments own client insights
Building blocks for client-insight-driven relationship model
Segment strategy
Research Voice of customer
and value proposition
Segment
Client insights Incentive and lead Brand and
Marketing ROI
and analytics management communication
Centralized Competitive Product and Product
channel support intelligence pricing strategy analytics
Product
Vendor Performance Product sales and Product design/
Risk/compliance
management reporting service support architecture
Knowledgeable Segment-specific Warm handoff Smart virtual Online research,
relationship managers branch network across channels response origination, and servicing
Channel
Teaming and Trained Client education Segment-driven ATM as extension
collaboration branch staff (channel capabilities) call center of branch
Source: Strategy& analysis
Strategy& 10
3. Interaction model
The planning process is key to ensuring the appropriate
level of collaboration is occurring across the
organization
Illustrative
Strategic Annual
planning planning
(3- to 5-year (current year
outlook) outlook)
Corporate
objectives Quarterly
planning
(initiatives)
Plan Align Develop Price Sell and service
– Improve up-front – Align strategic – Prioritize product – Redefine segment, – Employ a
planning with partners objectives to annual development and product, and channel cost-effective
to reflect corporate planning programs enhancement projects role in pricing go-to-market model
objectives and gather and quarterly within segments, across · Segment sets and · Coordinate sales and
insights planning initiatives segments, and across reviews pricing support of core
lines of business
– Include: segment, – Collaborate to make strategy quarterly products through
product, channel, decisions segment
· Product owns tactical
risk, treasury, finance, pricing · Establish guidelines
marketing, sourcing, for product specialists
partners, etc. · Channel manages
relationship pricing
Source: Strategy& analysis New interaction model
Strategy& 11
4. Governance
The performance management process, including KPIs,
must support the desired customer-centric behaviors
Performance management example
Corporate
Segments Functions
Performance review detail
Mass Retirees Operations Risk
Facilitate performance management
conversations with all segments and functions
as part of the performance review process
Mass affluent Gen Y IT Treasury
– Performance evaluation trends and outlook
– Performance issues, risks, and opportunities
High net worth Small business Marketing Compliance – Recommended actions
– Recommended changes to plan (as needed)
– Proposed focus for next quarterly business
Product Product Finance Legal review
Function-related topics can be raised in
Channel Channel Tax HR segment reviews as needed
Review quarterly
Review semiannually
Note: Products and channels are embedded in
the segment reviews. Channels can have separate
reviews as needed (geographic, division, etc.).
Source: Strategy& analysis
Strategy& 12
Finally, delivery platforms must be in place to
successfully deliver on the promise
Enablers Description
Operations – Streamline end-to-end processes by taking a customer-back view to meet customer needs
– Create accountability and ownership for end-to-end processes to deliver desired customer experience
– Build process utilities (e.g., for consumer lending) by leveraging common processes to build scale and expertise
Technology – Build customer management capabilities that enable relationship strategy (e.g., end-to-end workflow)
– Simplify current application complexity to deliver superior customer experience
– Create consistent data architecture to enable creation of client insights (e.g., 360-degree customer view)
Risk – Build robust risk management governance aligned to lines of business (LOBs)
– Embed process to set risk appetite and respective risk tolerances/targets/limits on LOBs and also at the
department and product level
– Enhance capabilities to manage risk across the organization
Support functions – Create strong support and business partnership aligned to the new operating model
– Build support function shared services to capture scale and expertise required to deliver services efficiently and
effectively
Source: Strategy& analysis
Strategy& 13
The result is a much more flexible operating model that
delivers a consultative client experience
Integrated relationship driven operating model
Build client insights and develop the
value proposition
Manage the client experience
Innovate products and solutions
Lowest cost fit for purpose delivery
Set the direction of the bank
Source: Strategy& analysis
Strategy& 14
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This report was originally published by Booz & Company in 2010.
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